P2P – What you really need to know

March 25, 2019

by
Team Cube

Learn how to earn 12-28% returns simply by creating your very own lending portfolio where you don’t even have to vet the borrowers.

What is P2P lending direct to borrowers?

P2P is short for peer to peer. Simply put – you become the bank. Banks lend your money out and keep a percentage of the profits for themselves. With P2P you remove the middleman (the bank) so that you can earn more. This type of P2P lending is direct to the borrower however you are using a specialist platform that uses technology to make this process safe and efficient instead of having to do all of the administration yourself.

P2P commenced in India in 2012 and is forecast to be a $5 billion industry by 2023.

Suitable for?

Use P2P to diversify the medium and high risk components of your portfolio for short term returns over 1-3 years. It’s also good for boosting monthly cash flow.

Terms at a glance

Returns

12 – 28%

Fees

1% is taken from the first EMI for retail loans, for institutional investors 2% is taken from the first EMI

Liquidity

Via monthly payments over 1-3 years as your investment is tied to individual loans

Minimum investment

₹50,000

Minimum to reinvest

₹5,000

Maximum investment

10 lakh across all P2P platforms

Investment duration

1 – 3 years

Borrower durations

1-3 years based on duration of individual loans

Borrower durations

1-3 years based on duration of individual loans

Risk

You select the risk category of borrower that you are comfortable. Note: the higher the returns, the higher the risk. Capital (your investment) and returns are not guaranteed with P2P Lending. Our advisor Faircent has a vetting process for borrowers

Pros

Cons

● No upfront fees. Faircent (Cube’s P2P advisor) only earns when you earn your first monthly EMI payments from borrowers.

● You receive principal and interest payments each month for the duration of each of the loans you fund which boosts monthly cash flow.

● Auto reinvest your monthly borrower payments.

● Great returns 12-28% based on your risk preference.

You can’t withdraw your investment in one lumpsum because your investment has been allocated to a loan for an agreed period of time.

A buyer could default and if recovery collection were to be unsuccessful, you could lose part or all of your initial investment for that particular loan.

Why Cube Wealth selected P2P Advisor Faircent

Faircent Founded in 2013 and named in the prestigious ‘Super Start Ups 2017’ list by Superbrands. Faircent were the first to be certified by the RBI as an NBFC- P2P. Faircent has over 5,600 lenders and disbursed over INR 40 crore as loans to borrowers. Faircent are industry leaders when it comes to P2P in India.

Faircent’s innovation and credibility is what made them the standout P2P Advisor for us at Cube Wealth. We all had great experiences testing Faircent with our own personal investments. We were able to build a unique experience for our Cube Wealth Investors where they simply select the P2P risk category they are comfortable with and the amount they want to invest. Everything else is done for the investor!

Cube Wealth members don’t need to worry about selecting the borrowers or the amount they want to loan them. So this really is the simplest way to set up your own P2P lending portfolio. Transparent portfolio tracking and our SuperSIP feature makes monthly reinvesting easy.

How it works

Faircent enables lending and borrowing to suitably vetted parties without having to go through a traditional financial intermediary like a bank. As an investor, your investment is pooled with other investors then allocated to multiple borrowers to minimise risk. For example, you may loan to 30-60 borrowers for a Rs. 50,000 investment. Borrowers are credit worthy and assigned a risk profile following Faircent assessment.

All investors (lenders) and borrowers must be KYC’d to meet compliance requirements. Faircent have a strict selection criteria for vetting borrowers that looks at their personal, professional and financial details and authenticate it. As Faircent approves a borrower they assign a risk rating and loan interest rate. They then match borrowers to lenders that have selected that borrower risk category.

A contract is created and the loan is dispersed. Borrowers make periodic payments on both the principle and the loan as an EMI payment. Faircent also engages a professional collections agency process to assist in recovering loans where a borrower has defaulted. Based on risk class, the default rate is 4-6%.

Investor funds are moved from their bank account to an escrow account and held until they are dispersed to borrowers. Repayments are also made back into the escrow account the with borrower EMIs

Summary

P2P is an investment worth adding to your portfolio for great returns with diversification outside of the market.

Want to start investing?

We know it’s a big decision to start investing, to change advisors or to try new investment options. That’s why we give you the option of a free personal phone consultation.